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Thursday, November 29, 2007

Once omniscient Market seems a little addled

To judge from the National Business Report, the once-omniscient stock market has suffered a little garbling of the proclamation program. Not too long ago the Market was able to, on any given day, assemble and incorporate vast arrays of information with uncanny accuracy.

Perhaps it is still true, but we are lacking the proper priests to translate the oracle's newly cryptic utterances. The panel of experts assembled by NBR last night
was certainly not up to the task. Hold cash, oil should be $60 per barrel and the usual hedge on whether there will be a recession or not. Susie Gharib's panel of experts sounded like a panel of Chicken Littles.

The boom of the last two days had them spooked. And it should, if the assumption is that the Fed's hint of an interest rate cut December 11 was the catalyst for the 500 point rise. The bond market, apparently, has already priced in the cut. It has just forgotten to tell the stock market. Rate cuts as a sign of insecurity are hardly good news. Consider, too, that any effect on the real economy from a rate cut would be at least 12 months out. Does the financial sector really need liquidity? It would benefit more from some corporal punishment.

It appears that the value of stocks, bonds and commodities (and other currencies) is only slightly more clear than the various CDOs and SIVs that are rushing around. In the Supply Side world stocks should be crashing as we enter the recession. After all, debt driven demand has been cut off at the knees.

But it is not a Supply Side world, and the prices of these assets and securities do not reflect anything about their underlying worth. Because they're not worth very much. It reflects only that there is nothing else halfway safe to buy with your dollars. It is inflation driven by an investor class, an investor cult, that no longer has a functioning economy to invest in.

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